Peace worries some Korea watchers more than war

Firstly, any integration while an authoritarian regime in North Korea remains in place is difficult to envisage.

Ian Bremmer, president of the Eurasia Group risk consultancy, said the North's leaders had no desire to end their isolation and rigid social controls — because they would lose power.

“If half the people of North Korea saw 20 minutes of CNN they would realize how egregiously their government lies to them about life beyond the walls,” he wrote in his book The J-Curve. “That realization could provoke widespread social upheaval.”

Far more likely is that reunification is suddenly thrust upon South Korea when the regime in the North collapses. Policymakers planning for the collapse of the regime generally group the scenarios into two groups — “hard landing” and “soft landing”.

Soft landing scenarios envisage Kim or a post-Kim military leadership recognizing that wide-ranging reform is needed, and going through this reform as part of a phased reunification.

But most expect some kind of “hard landing” — either the complete collapse of the government, or even worse, a descent into civil war with various factions fighting for power.

South Korea will probably have little control over the timing of reunification — it is likely to happen in the midst of a crisis, in which there may well be a humanitarian disaster to deal with as well as long-term economic policy to be mapped.

And implementing a gradual integration in such circumstances may be impossible. The people of North Korea, just emerging from decades under dictatorship, would be unlikely to accept being asked to quietly wait as the two economies gradually merged.

The Hong Kong model may be of limited relevance to Korea — China was able to maintain two separate systems with tightly controlled migration because it is an authoritarian state.

But democratic South Korea would find it extremely difficult to prevent citizens of the North migrating south in search of better lives, without causing widespread anger and even unrest.

One issue mitigating the economic risks to the South is that a large amount of aid is likely to be provided by other nations.

But for investors, reunification remains a key risk. Predicting how it will happen is impossible. But of the wide range of possible scenarios, many involve heavy economic costs for the South, as well as unrest and massive social upheaval.

Most foreign investors will want to get out of South Korean assets before it happens. If a united Korea proves as successful as Goldman Sachs forecasts, they can always return.

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